Decisions, Decisions

Here’s a link to my article in Business West about three recent decisions from the Massachusetts Commissions Against Discrimination (MCAD).

Do MCAD decisions really matter? You bet. When the full Commission interprets our commonwealth’s anti-discrimination law, Chapter 151B, judges generally defer to the MCAD’s interpretation. So take a look. And if you spot the typographical error in the second paragraph, just send me an email identifying the mistake and you might win a prize.*

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* Disclaimer: No, you won’t win a prize. But I promise to hold you in high esteem for your proofreading prowess.

New Gas Pipeline Decision

Leverage requires a place to stand

Three environmental groups lost their case against the Federal Energy Regulatory Commission (FERC) because they lacked standing. As Archimedes noted, you can move the world with a long enough lever and a fulcrum, but only so long as you have a place to stand. Without standing, not only will you fail to move the world, but — as the three groups learned too late — you will also fail to move the United States Court of Appeals for the D.C. Circuit.

The story began when Spectra Energy applied to FERC for a certificate of public convenience and necessity (a permit) to build a natural gas pipeline to New York City via Jersey City. The Atlantic Chapter of the Sierra Club, Food & Water Watch, and NO Gas Pipeline intervened in the FERC proceedings and opposed the issuance of a certificate for several reasons, notably the increased likelihood that the gas in the pipeline would cause the homes of their Jersey City members to suffer from increased levels of radon. FERC did not fnd the objections persuasive and on May 2012 issued the certificate. The three organizations and the City of Jersey petitioned the Court of Appeals to review the decision.

On July 1, 2014, the court dismissed the petition for want of jurisdiction. It had other reasons for dismissing Jersey City’s petition, but for the environmental coalition the fatal issue was standing: the court held that each group had failed to show “injury in fact,” meaning “the invasion of a legally protected interest which is (a) concrete and particularized… and (b) actual or imminent, not conjectural or hypothetical.” In trying to demonstrate standing, the groups alleged that the pipeline would raise the risk of radon and terrorism, both of which could injure their Jersey City membership.

These risks were too speculative, the court decided. The supposedly heightened radon risk depended on energy companies choosing to (1) extract high-radon gas and (2) transport it without taking steps to reduce the radon levels. There was no evidence that Spectra would make these choices.

As for the terrorism threat, the court observed that the commission of an act of terrorism depends on the “intervening acts of third parties,” i.e. terrorists.  Perhaps the court had in mind the perverse incentive that would result from forbidding construction of a pipeline because of the chance that terrorists might try to blow it up. If acts of violent sabotage could serve as the basis for denying permits, some pipeline opponents might find themselves unable to resist the temptation to engage in them. And, besides, there is precious little that al Qaeda et al will not target or weaponize in the realm of infrastructure (or anything else, for that matter).

Here, however, I am speculating. But if I were trying to persuade a judge to deep six a project, I would keep this public policy issue in mind and refrain from relying on the target-for-terrorism argument. The main point for readers with an interest in the Northeast Expansion Project is that for standing purposes, organizations and the individuals that they consist of must demonstrate facts that establish “actual and imminent” injury. Harms that are too contingent and attenuated will not suffice. That remains true even if the organizations intervened at the FERC stage.

The take-away: In and of itself intervening in FERC proceedings is no guarantee that the intervenor will have standing to challenge FERC’s decision in court.

Court engages in time inflation and creates the 395-day year

How long is a year? That was the essence of the question the Supreme Judicial Court (SJC) answered on September 11 when it issued its decision in Brigade Leveraged Capital Structures, Inc. v. Pimco Income Strategy Fund, holding that the phrase “on at least an annual basis” means 395 days. Not as odd as it sounds, the decision represents a win for shareholder democracy and provides a reminder to attorneys who draft corporate bylaws to choose their words very carefully.

The dispute revolved around a bid to increase shareholder power. Pimco, the defendant investment management firm, managed two funds in which Brigade, the plaintiff, held shares. Brigade decided to nominate one of its partners to serve as a trustee on the boards of the two funds. Shareholders were set to elect the trustees at the funds’ next annual meeting. When it learned of the nomination, Pimco rescheduled the annual meeting from October 11, 2011, to July 31, 2012.

Brigade went to Superior Court asking for an order to make Pimco hold the 2011 shareholder meeting sooner. Pimco contended that under the terms of the bylaws it was entitled to reschedule the meeting even though the new date of July 31, 2012, was 19 months after the last shareholder meeting. In dispute was a provision in the trust’s bylaws which requires that regular meetings of shareholders “shall be held, so long as Common Shares are listed on the New York Stock Exchange, on at least an annual basis.” But what did that phrase — “on at least an annual basis” — mean?

Pimco said it could mean at any time during a fiscal year. With this approach, the management could conceivably hold one meeting in January 2013, but then not convene another one until December 2014, almost two years after the previous meeting. Rejecting Pimco’s interpretation, and siding with the shareholders, the SJC held that the phrase meant “no later than one year and thirty days (395 days) after the last annual shareholders meeting.” How and why did the court reach this conclusion?

Treating the bylaws the way it would a contract, the court construed the ambiguous provision against the party that drafted the document, namely Pimco.  In addition, it read the words in the context of another section of the bylaws that referred to an “annual period,” which ended 30 days after the anniversary of the last annual meeting. But there was also an important principle at stake: the shareholders’ right to meaningful corporate democracy. “Delay in holding a shareholder election diminishes electoral rights by allowing [the] trustees to become more deeply entrenched and to continue to harm the interests of shareholders.”

What makes this case important rather than simply intriguing? The fact that other trusts and corporations in Massachusetts have bylaws that contain the same terms as the bylaws at the center of Brigade v. Pimco, such as the “annual period” provision and the requirement for shareholder meetings “on at least an annual basis.” This is not because of lazy lawyering and a fondness for copy-and-paste. Even the most diligent, detail-oriented attorneys rely on previous examples because familiarity and predictability are valuable assets in corporate governance and law, and because those older bylaws have stood the test of time. Of course, at the heart of the Brigade v Pimco case was the very meaning of time.

So what should small business owners do? First, it is worth checking their company’s bylaws to learn whether they require shareholder meetings “on at least an annual basis.” Then they should decide whether the annual-meeting provisions, as a court would likely interpret them, will work in practice. If the bylaws need changing, they can amend them by following the steps laid out in the bylaws. Without question, this involves time and other valuable resources that owners would prefer to devote to growing the business. On the other hand, it can stop misunderstandings before they start, and (no matter what your attorney charges per hour) it will prove much less expensive than litigation.

Attorney Peter Vickery practices in Amherst, Western Massachusetts.